INTERNATIONAL STRATEGY

DEVELOPMENT
Pr. Alexis Catanzaro
Competencies

• Identify strategic issues of a situation in an international context

• Design an international strategy to meet the need of the identified

issues

• Understand and explain main theoretical frameworks in

international business
Summary

• Introduction International strategy : key concepts and context

• Chapter 1 External strategic analysis in an international context
• Chapter 2 Internal strategic analysis to international development
• Chapter 3 Strategic choices and foreign market entry modes
References

Foundations of Strategy
by R. Grant and J. Jordan, ed. Wiley, 2012, 1st edition, 528 pages

Management international : des pratiques en mutation

by S. Urban et U. Mayrhofer, edition Broché, 2011

Fundamentals of Global Strategy

by Cornelis A. de Kluyver
http://catalog.flatworldknowledge.com/bookhub/reader/5579#dekluyver
globstrat_1.0-ch00pref
 Introduction
International strategy :
Key concepts
and Context
Key concept

Strategy, or strategic decisions, concern (Johnson, Scholes, Whittington and

Fréry, 2008) :

• The long-term direction of the organization

• The scope of its activities
• The gain of a competitive advantage over its competitors
• How to deal with changes in the environment
• The development of resources and skills
• Stakeholder expectations and values
Key concept

The strategy sets the destination

-> It adopts the saying, "If you do not have a clear

destination, you are sure you will not reach it."
Key concept

Definition of “Strategy”

• Strategy is the determination of the basic long-term goals of the

enterprise, and the adoption of courses of action and allocation of
resources necessary for carrying out these goals (Chaffee, 1985).
• To manage the strategy (strategic planning) means to :
A. Make strategic analysis
B. Make strategic decision (strategy formulation = what to do ?)
C. Deploy the strategy (strategy implantation)
What is ‘strategy’?
Definitions

• The strategy is the set of decisions and actions that aim to ensure the
internal and external coherence of the company, in the short, medium and
long term’ (Weill, 1992)

• The strategy is the art of allocating its resources, by definition available in

limited quantities, so as to create a sustainable advantage on the
battlefield’ (Ducreux, Abate and Kachner, 2009)

• The strategy aims to successfully articulate the company's strengths and

weaknesses to the opportunities and threats of the environment’(Weil,
2008)
The strategic management process
Strategic management
= the art of taking care of Strategic
Diagnosys
business strategy

Step 1. To understand the

strategic positionning
Step 2. to make strategic
choice for the future Strategic Strategic
deployment Decisions
Step 3. to manage the
« strategy in action » (to
deploy the strategy)
Key concept

Definition of “Internationalisation”

• Internationalisation is the process in which firms increase their

involvements in international operations (Welch and Luostarinen,
1988).

• It is “the process of adapting firms operations (strategy, structure,

resources) to international environments” (Calof and Beamish, 1995,
p. 116).
Key concepts
Internationalization occurs through two mechanisms:

• (1) Trade, i.e. the sale and shipment of goods and services from one country to
another;

• and (2) direct invesmtents, i.e. building or acquiring productive assets in

another country.

The forces driving both trade and direct invesments are:

• First, the quest to exploit market opportunities in other countries

• And, second, the desire to exploit resources and capabilities located in other
countries.
Key concepts
Ansoff Matrix
Selling your existing
products into new
markets

Or, potentially, new

products for new
markets
Key concept

International strategy is a combination between the two :

A. Make a strategic analysis of a firm and its international

environment (and according to)

B. Make strategic decision to help the firm to compete in international

markets

C. Deploy the international strategy designed

Key concept

ANALYSIS DECISION DEPLOYMENT

Opportunities and threats in the

environment?
Entry modes?
Competitive environment? Strategic positionning?
Process?
Strengths and weaknesses of Foreign markets?
the firm? Organization?

Strategic resources and

competitive advantage?
What is a GLOBAL company ?
Gupta, Govindarajan, and Wan (2008, p. 7) define corporate globality in terms of
four dimensions:

(1) Company’s market presence,

(2) Supply base,

(3) Capital base,

(4) and Corporate Mind-Set.

 What is a GLOBAL company ?
(1) The globalisation of market presence refers to the degree the company has
globalised its market presence and customer base.

Oil and car companies score high on this dimension. Wal-Mart, the world’s largest retailer, on the
other hand, generates less than 30% of its revenues outside the United States

(2) The globalisation of the supply base hints at the extent to which a company
sources from different locations and has located key parts of the supply chain in
optimal locations around the world

Caterpillar, serves customer in approximately 200 countries around the world, manufactures in 24
of them, and maintains research and development facilities in nine.
 What is a GLOBAL company ?
(3) The globalisation of the capital base—measures the degree to which a
company has globalised its financial structure.

This deals with such issues as on what exchanges the company’s shares are listed, where it
attracts operating capital, how it finances growth and acquisitions, where it pays taxes, and how it
repatriates profits.

(4) The globalisation of the corporate mind-set refers to a company’s ability to

deal with diverse cultures.

GE, Nestlé, and Procter & Gamble are examples of companies with an increasingly global mind-
set: businesses are run on a global basis, top management is increasingly international, and new
ideas routinely come from all parts of the globe.
Case

opening case
 Opening case
A global company?
Market presence Supply base Capital base Corporate mind-set

300 stores in 26 Production from (From the web) Mission: to offer a wide range of wel- designed,
functional home furnishing products at prices so low that
countries. (2015) several low-cost Holding located in
countries Netherland ; as many people as possible will be able to afford them
70% of its sales Capital based
still come from locked ; Fully « IKEA way », but pressure to adapt the management
Europe Swedish company style

key decision-making and training centres located in

Sweden

Country-specific adaptations but limited to 5-10% of the

product range (excepted China)

Internatioanlization = source of knowledge ;

opportunities for innovation and learning.
Internationalisation drivers
Companies embark on an expansion strategy for one or more of the following
reasons:

• To expand into new markets for new customers

• To follow global customers

• To gain strategic power

• To balancing risks

• To improve the cost-effectiveness of their operations (cost benefits of scale

and replication, access to low cost raw materials and labour)
 Basic framework of an international strategic
management process

External analysis Market selection

Structure

Identification of a
Internationalisation International
competittive Control
drivers deployment
advantage

Timing

Internal analysis Entry modes

France and internationalisation
129 000 French companies internationalised

180 French companies which are number 1 in their industry

25% of international market possessed by French companies in the

following industries: luxury, pharma, energy, aerospace, shipbuilding

Rank 6 in R&D investments

When more than 60% of a population speak french, French companies get
more than 20% of the market (ex: Senegal, Gabon, Côte d’Ivoire..) : in
2060, Africa = ¼ of total population
Introductive
case study
Case study: Nintendo
 History

Founded in 1889

Began as a playing cards company

Was one of the pioneers of video game consoles in the

early 1980s

Continued as the market leader with

its Super Nintendo
 History

Sony introduced its Playstation and

Microsoft its Xbox in the mid- 90s

These two vido consoles were too

advanced

Sony sold 120 million of PS2

…against 20 million for Nintendo
and its Gamecube!
 History
A decade later:

- Nintendo came back with a new

console: the Wii
- Its stock price tripled
- Its market capitalization exceeded
that of Sony Corporation during
2007
- It became the second largest
corporation in Japon after Toyota
 Questions
By using the materials available and complementary findings on
the web, answer the following questions:

1. Draw a PESTEL analysis from the lens of analysis of Nintendo

2. Draw a 5 forces analysis of Nintendo market
3. How many Strategic Business Unit (SBU) Nintendo has?
4. What are the Key Factors Success and Distinctive Competencies of each
SBU?
5. Itemize the synergies between the SBU of Nintendo
6. Draw a SWOT analysis
7. Compare Nintendo positioning with competitors
 PESTEL
Political
(-) Political instability in Japan (Three presidents, in three years) => uncertainty
in policymaking
(-) The sanctions by the Japanese government on Russia can severely impact
the shipment of gaming consoles and other entertainment devices
(-) Ukraine conflict indirectly impact the manufacturing capacity of video
gaming companies (green neon supplies from Ukraine)
(-) The production facilities of most video game companies are located in China
and the Japanese government is discouraging companies to shift their
investments out of China (McFerran, 2020).
(+) The US Department of State in partnership with the non-profit organization
Games for Change has announced a project to engage 2700 students in a
virtual student exchange program wherein the students would be involved in
development and creation of social impact of video games (Smith, 2021).
(+) US, one of the major markets for the video game industry has reduced the
corporate tax from 35% to 21%
(+) The UK is another important market and the lower tax bracket of 19% can
encourage video game companies to invest more in the UK market, hence
increasing their prospects for financial gains (PwC, 2022).
Economical
(-) According to OECD, the huge fluctuation in the
growth rate of Japan would prevent consumers from
spending on entertainment and saving more for their
basic necessities
(-) Video games companies ship a large batch of
shipments to multiple countries, hence the sudden
change in exchange rates can have an impact on the
cost of the products.
(-) The US, one of the major markets for the video
gaming companies is expected to witness a sharp
decline in the coming years from the current level of
5.7% in 2021 to 4% in 2022 and to 2% going in 2024
while another major market UK grew by 6.9% in 2021
and lower to 4.7% in 2022 (Partingon, 2022).
(+) The video gaming industry in Japan is valued at
1.66 trillion Yen and is the third-largest video gaming
market after China and US. Further, the Japanese
gaming industry is expected to reach 1.9 trillion Yen by
FY2027 (Statista, 2022).
 PESTEL
Social
(+) Gaming is very popular today (more than 50% of people plays
regularly)
(+) In the US, 30% of consumers pay for a gaming subscription
service.
(-)(+) The evolving trend of mobile games wherein almost 71% of
people play games on smartphones daily can act as a threat to the
companies dealing in consoles and related gaming components
(Nozaki, 2021).
Environmental
(-) Environmental goals and pressure: Electronic products produce
about 650,000 tons of waste and produce a great number of
fluorocarbons. The Japanese government has established targets of
70% for the recycling of fluorocarbons by the end of 2030
(Kanagawa and Nakayama, 2021). The high targets of recycling can
put a financial burden on the companies as they would have to
establish adequate infrastructure and research different ways of
recycling the waste.
(-) In the US, 27 states have different e-waste regulations
Technological
(+) The Japanese government spends hugely on Research &
Development, in 2020 it spent more than 19.50 billion yen;
(+) New technological opportunities : VR, metavers, digital gaming,
smartphones…
Legal
(+) Japan has a strong Intellectual Property system in place and the
company can get their idea or technology patented for a period of
25 years, highlighting the positive scope for the companies involved
in tech-related industries (Shirane, 2021).
(-) The new ordinance by the state of Kagawa limits the time the
children can play games for up to 60 minutes on weekdays and 90
minutes on weekends (Peppiatt, 2020).
 5 forces analysis
Threat of New Entrants
Moderate level of threat
- Entry barriers are high
- Need a strong brand name
- Customers loyal to existing brands
- High learning curve
- Regularly new entrants
Bargaining Power of Customers
Low level of power
- High switching costs
- Large number of customers
- An only place for finding iconic
licences: Mario, Zelda, Mario Kart,
Smash Bros…
Bargaining Power of Suppliers
Moderate level of power
Rivalry - Suppliers can easily be switched
Moderate level - Electronic components are
inexpensive
- Large and growing - …for now..a scarcity is possible
industry ($100 billion)
- Differenciation of
Nintendo products
Substitute products
- However, rivals are good Strong threat
in adapting/copying
products (PSP, Kinect…)
- Smartphones as new « video
console »
- Director of Nintendo America :
« We sell entertainment. Our
biggest competitors are not Sony or
Microssoft, but Netflix and others »
 SBU
External criteria Internal criteria
Segmentation « Hardware » « Software » Similarity Segmentation « Hardware » « Software » Similarity
criteria SBU SBU criteria SBU SBU
Customers - Gamers of - Gamers of -> Identical Technologies - Electronic - Software -> Different
every age every age Console and devices development
- parents - parents games work production
together Competencies - Components - Coding -> Different
Purchase - Fonctionality - Type of games -> Different purchasing - Scenarisation
criteria - Design - Gameplay - Manufacturing - Gameplay
- Price - Price mastering
Costs - R&D for the - 50% of cost -> Different
Distribution - Specialized - Specialized -> Identical structure game console for artists and
shops shops - Components IT specialists
- Supermarket - Supermarket - Manufacturing
- Internet - Internet

Competition - Other - Editors and -> Different

console developers of 2 similarities / 5 differencies
makers: Sony, video games: => 2 distincts SBU
Microsoft… Ubisoft, Blizzard,
Activision…
 KFS and Distinctive competencies
KFS
- Creation of known characters, licenses
- Critical size to cover rising costs
Software
- Possess a large portfolio of games to have a
chance to release a "hit"
- Ability to offer a low price
- Being a game publisher
Hardware
- Relations with third-party publishers
- Mastery of technologies (including graphics)
Distinctive competencies
- Gameplay, very distinctive
- Declination of the Nintendo universe with its
personal and party series (Mario, Zelda, etc.)
- Innovative game concepts, adapted to different
audiences
- Control of development costs
- High controlling of production costs, unlike
competitors
- Largest investor in internal R&D (interface/user
innovation)
 Synergies between SBUs

1. Sale of the ”console-games” couple

2. Brand image and awareness
3. The distribution network
4. Sharing skills (harware and software designers work together)
5. Organizational culture, based on gameplay
 SWOT analysis
Weaknessees
Strenghts
- Overdependence on Switch- 55% of Nintendo’s revenue
- High market share
comes from one product
- Most popular licences - Inefficient supply- Nintendo’s production capacity is not
- Software and Hardware company enough to meet the rising demand because of the shortage
- Gaming culture of chips.
- Costs mastering - A « small » company focused on video games, (compared to
- Strong financials big Microsoft and Sony which benefit from more synergies between
their subsidiary, e.g. cloud technology of Microsoft for live services of
Xbox game console)

Opportunity
- Large and growing industry ($100 billion)
- Capturing the mobile games segment
- Attraction of the young for the old Nintendo game
consoles (reprint)
- Penetration into emerging markets- Nintendo’s
majority of the business comes only from three
countries, the US, Europe, and Japan.
Threats
- Competitive pressures such as new entrants due to
technological innovations (e.g. Google Stadia)
- Competitive pressure of others entertainment
companies (e.g. Netflix)
- New-age video games: VR, metaverse…
- Fluctuations in the foreign exchange rate (Yen, Japan)
 Positionning
• Nintendo has moved from “simple video
games” to “mainstream entertainment”

=> Differentiation strategy + cost leadership

strategy = Best-cost strategy

• Sony and Microsoft: for hard-core gamers/

fight with the techno
• Nintendo, with its Wii and mobile console
« DS », do not target the same audience as
Sony and Microsoft with Playstation and Xbox
Þ Different marketing segments
Now, the future?
 International Chapter 1
external strategic
analysis
• Environment
• PESTEL analysis
• CAGE distance framework
• FIVE FORCES
The Relationship between an Organisation and
Its Environment

What is the Environment?

The set of external conditions and forces that have the potential to
influence the organization
Environment of Subway?:

Its customers, its rivals such as McDonald’s or Quick in France, social trends such
as the shift in society toward healthier eating, political entities, and many additional
conditions and forces, some very specific to a country.
The Relationship between an Organisation and
Its Environment

Two main components :

- The general environment (or

macroenvironment) includes overall trends and
events in society such as social trends,
technological trends, demographics, and
economic conditions.

- The industry (or competitive environment /

micro-environment) consists of multiple
organizations that collectively compete with one
another by providing similar goods, services, or
both.
The Relationship between an Organisation and
Its Environment

• Every action that an organisation takes, such as raising its prices

or launching an advertising campaign, creates some degree of
changes in the world around it.

Subway’s move to cut salt in its sandwiches, for example, may lead other fast-
food firms to revisit the amount of salt contained in their products.
The Relationship between an Organisation and
Its Environment

What Does the Environment Matter?

1. It provides resources that an organisation needs in order to

create goods and services (labors, money, raw materials…)

International strategy of Subway simply would cease to exist without the

contributions of the franchisees that operate its stores, the suppliers that provide
food, and the customers who provide Subway with money through purchasing its
products.
 The Relationship between an Organisation and
Its Environment

What Does the Environment Matter?

2. It is a source of opportunities and threats for an organization.

Jared Fogle’s* growing fame created an opportunity for Subway to position itself
as a healthy alternative to traditional fast-food restaurants.
But, Subway faces a threat from some upstart restaurant chains. Saladworks, for
example, offers a variety of salads that contain fewer than five hundred calories.

* a former spokesman for Subway restaurants. He gained fame for significant weight loss, attributed to eating Subway
sandwiches, and was a spokesperson for the company's advertising campaigns from 2000 to 2015.
 The Relationship between an Organisation and
Its Environment
What Does the Environment Matter?

3. It influences the firm

competitive advantage
Firm competitive advantage is achieved when
a firm matches is internal strenghs in
resources and capabilities to the key success
factors of the industry

=> In international business, it depends also on

the firm national environment, and in
particular availability of resources within the
countries where the firm does business.
The Relationship between an Organisation and
Its Environment
National influences on competitiveness: Comparative advantage

The theory of comparative advantage (leads to the Porter Diamond model) states that a
country has a comparative advantage in those products that make intensive use of those
resources available in abundance within that country.
=> particularly useful for direct investment strategy

The US has an abundant supply of

Bangladesh has an abundant supply of technological resources
unskilled labour

=> Comparative advantage in products that => Comparative advantage in technology-

make intensive use of unskilled labour intensive products (microprocessors, computer
(clothing, assembly of electronic products…) software, pharmaceuticals… )
The elements of the general environment

The PESTEL analysis :

a macro-analysis perspective
The elements of the
general environment

PESTEL analysis shows the big picture

of a firm’s external environment,
particularly as related to foreign markets.

• Provides a better understanding of the

opportunities and threats managers
face.

• Aids in building a better vision of the

future business landscape and how
the firm might compete profitably.
The PESTEL analysis

3 steps in the PESTEL analysis :

Opportunities?
Threats? Risks?
Priority?

IDENTIFICATION CATEGORISATION
CONCLUSIONS
First, consider the identify and categorise
relevance of each of the information that
Finally, analyse the
the PESTEL factors to applies to these
data and draw
your context. factors.
conclusions.

The most important factors? The most important elements?

Short/Long terms?
Degree of uncertainty ?
CONSEQUENCES?
 Short / Long Degree of
Most important terms sustainability / Opportunities Conclusions /
factors occurrence uncertainty or Threats Priority Consequences

Tendency to more Now Very sustainable Opportunity High Cut salt to 50%
S healthy life Marketing adapted

L
The CAGE distance framework
Developed by Ghemawat, an international strategy guru.

The CAGE framework offers businesses a way to evaluate countries in terms

of the “distance” (difference) between them.

Ghemawat provides an example for the fast-food industry, where he shows

that on the basis of per capita income, countries like Germany and Japan
would be the most attractive markets for the expansion of a North American
fast-food company.

However, when he adjusts this analysis for distance using the CAGE
framework, he shows that Mexico ranks as the second most attractive market
for international expansion, far ahead of Germany and Japan.
The CAGE distance framework
Identifies Cultural, Administrative, Geographic and Economic differences or
distances between countries that companies should address when crafting
international strategies (≠ PESTEL => no differences between countries, global approach)

C for cultural distance A for administrative distance

G for geographic distance E for economic distance

(Ghemawat and Siegel, 2011)

The CAGE distance framework
The CAGE distance framework
The CAGE distance framework
Usefulness :

• It makes distance visible for managers.

• It helps to pinpoint the differences across countries that might handicap

multinational companies relative to local competitors.

• It can shed light on the relative position of multinationals from different

countries. For example, it can help explain the strength of Spanish firms in
many industries across Latin America.

• It can be used to compare markets from the perspective of a particular

company.
The CAGE distance framework
Example of Dell’s development in China

For Dell’s corporate clients in China, the CAGE framework would likely have revealed
relatively little distance on all four dimensions—even geographic—given the fact that
many personal-computer components have been sourced from China.

However, for the consumer segment, the distance was rather great, particularly on the
dimensions of culture, administration, and economics. For example, Chinese consumers
didn’t buy over the Internet, which is the primary way Dell sells its products in the United
States. One possible outcome could have been for Dell to avoid the Chinese consumer
market altogether.

However, Dell opted to choose a strategic alliance with distributors whose knowledge
base and capabilities allowed Dell to better bridge the CAGE-framework distances.
The CAGE distance framework

https://pressbooks.lib.vt.edu/strategicmanageme
nt/chapter/9-3-cage-framework/

https://www.consuunt.com/cage-distance-
framework/
For each of the elements of the CAGE distance framework, enter what you know about the two countries you want to
compare to identify how much « distance » exists between them. Identifiy implications for your strategy or projet.

Sensitivity analysis Differences between Differences between

France (or domestic France (or domestic The less distant Conclusion /
(List the factors relevant to market) and country market) and country country? Why? Consequences
your industry) A B

Cultural
distance

Administrative
distance

Geographic
distance

Economic
distance
Evaluating the industry
Factors Favoring Industry Globalization (Porter, 1984)

2. Costs
1. Markets • Large-scale and large-scope economies
• Homogeneous customer needs • Learning and experience
• Global channels • Sourcing efficiencies
• Transferable marketing approaches • High R&D costs

3. Governments 4. Competition
• Favorable trade policies • Between countries
• Common technological standards • Global competitors
• Common manufacturing and marketing regulations
Evaluating the industry : 5 FORCES
A technique for understanding an
industry by examining the interactions Bargaining power of Bargaining power of
customers suppliers
among actors : micro-analysis.

Purpose = identify how much profit

Competitive
potential exists in an industry, here rivalry within
applied to a foreign country or a industry
geographical zone.

If none of these five forces works to undermine profits in the

industry, then the profit potential is very strong. Threat of new Threat of substitute
entrants products
If all the forces work to undermine profits, then the profit
potential is very weak.

Most industries lie somewhere in between these extremes.

 5 FORCES analysis
INDUSTRY COMPETITORS
=> direct competitors
Fiat vs Renault Bargaining power of Bargaining power of
customers suppliers
SUBSITUTE PRODUCTS
=> an other way to meet the same need
Cars vs public transports / Electric cars vs diesel
Competitive
SUPPLIERS rivalry within
Lear Protection who produces auto interior systems industry
POTENTIAL NEW ENTRANTS => barriers to entry ?
=> firms that or not currently considered viable competitors in
the industry but that may become viable competitors in the
future Tesla Motors Threat of new Threat of substitute
entrants products
• Start-up companies created by entrepreneurs,
CUSTOMERS, BUYERS
• Foreign firms,
=> “direct”firms
• Supplier customers ≠ final
that choose customers
to enter their customers’ business, Barriers to entry : IP
Automobile
• Buyer firmsdealerships
that choose≠toindividual
enter theirdrivers
suppliers’ business. protection, cost, regulation,
advertising, networks…
Evaluating the industry : 5 FORCES
5 FORCES analysis
The Rivalry among Competitors in an Industry
Criteria 1 = Weak threat 5 = Strong threat
numerous and no one firm rules the
Number of competitors, power few and one firm rules the industry
industry
Growth rates very fast very slow (= lack of customers)
only on price (so competitors not
Competition only on uniqueness
differentiated)
Fixed costs very low very high
very high (= expensive to leave the
Exit barriers Very low
industry)
Excess capacity of production very few a lot
Perishable product very highly very weakly
Industry concentration very low very high
SCORE total / 8 (or some criteria can be weighted)
5 FORCES analysis
The Threat of Potential New Entrants to an Industry
Criteria 1 = Weak threat 5 = Strong threat
Competition based on economies of scale very strongly very weakly
Capital requirements to enter the industry very high very low
Access to distribution channels very limited very easy
Governmental policy discourages new entry don’t discourages new entry
Differentiation among existing competitors very high very low
very high (=discourages customers
Switching costs from buying a new entrant’s very low
offerings)
Expected retaliation very high very low
Cost advantages independent of size (e.g.
don’t exist exist and are numerous
high expertise in production)
SCORE total / 8 (or some criteria can be weighted)
5 FORCES analysis

The Threat of Substitutes for an Industry’s Offerings

Criteria 1 = Weak threat 5 = Strong threat
Number of substitutes very low very high
Adequacy of substitutes products 1 very low very high
Adequacy of substitutes products 2 very low very high
Adequacy of substitutes products X very low very high
Price of substitutes products 1 higher lower
Price of substitutes products 2 higher lower
Price of substitutes products X higher lower
SCORE total / X (or some criteria can be weighted)
5 FORCES analysis
The Power of Suppliers to an Industry
Criteria 1 = Weak threat 5 = Strong threat
Number of suppliers very high very low
More concentrated than the industry very weakly very strongly
Number of substitutes very numerous don’t exist
Industry members rely heavily on suppliers to be
very weakly very strongly
profitable
Cost for industry members when changing suppliers vey low very high
Products (of suppliers) differentiated very weakly very highly
Could compete in the industry if motivated very unlikely very likely
total / X (or some criteria can be
SCORE
weighted)
5 FORCES analysis

The Power of an Industry’s Buyers

Criteria 1 = Weak threat 5 = Strong threat
Number of buyers, compared to the numbers of firms
very high very low
supplying the industry (or the number of production)
Standardised or undifferentiated products in the industry very weakly very strongly

Switching cost in changing vendors very high very low

Could compete in the industry if motivated very unlikely very likely

Importance of products bought by buyers to quality or
very highly very weakly
price of buyer’s products (for BtoB situation)
total / X (or some criteria can be
SCORE
weighted)
5 FORCES analysis
The Limitations of Five Forces Analysis

• Relationships among rivals are sometimes adversarial and sometimes

collaborative.

General Motors and Toyota compete fiercely all around the world but they also
have worked together in joint ventures.

• Similarly, many firms find ways to collaborate with its suppliers and buyer for
mutual benefit.

Concepts such as just-in-time inventory systems depend heavily on a firm working

as a partner with its suppliers and buyers.
Risk of internationalisation
Before deciding to enter a foreign country or broader area,
companies should carefully analyse the risks involved:

1. Political risks
2. Legal risks
3. Financial-economic risks
4. Sociocultural risks.
Risk of internationalisation
1. Political risks

=> politically induced actions and policies initiated by a foreign government:

• global or country-specific;
• macro (in general in a country) or micro (for a company or a group of
company).

Terrorist attacks in occidental countries, instability in the Korean peninsula,

and the recent global crisis = effects and associated political decisions on
transportation, tourism, insurance, and other sectors…
Risk of internationalisation

2. Legal risks

=> risk that international companies encounter in the legal arena in a particular
country (often closely tied to political country risk)

Entering such countries can expose a company to a host of risks, including

the loss of intellectual property, technology, and trademarks.
Risk of internationalisation

3. Financial or economic risks

⇒ analogous to operating and financial risk at home:

• level of the country’s economic development,

• the country’s ability to meet its financial obligations,
• its currency competitiveness and fluctuation,
• and its willingness to embrace changes and innovations,
• working conditions, infrastructure, technological innovation, and the
availability of natural and human resources…
Risk of internationalisation

4. Societal or cultural risks

⇒ associated with operating in a different sociocultural environment:

• importance of ethnic, religious, and nationalistic movements,

• the standard of living,
• patriotism, or the presence of charismatic leaders…
Scoring model to assess risks
Scoring model to assess risks
 Internal strategic
Chapter 2
analysis to
international
development
• Resources and competencies
• SWOT analysis
Resources and competencies
Resource-based view => A firm is “a set of resources, which can be
resources, competencies and capabilities”

Assumption :
• The differences of firm performance between firms come from the
deployment of their own resources

Resources are assets, skills, capacities, competencies, knowledge,

financial resources etc. that a company possesses and which are
used to build sustainable competitive advantage and improve
performance (Barney, 2001, 2007).
Resources and competencies
But we can distinguish resources and competencies/capabilities

• Resources: tangible or intangible assets => physical, financial,

human, technological, organizational and reputational
1. Required: to meet the minimum needs of customers
2. Non required: to build a competitive advantage, more difficult to develop
or imitate
• Competencies: bundle of resources deployed to achieve different
kinds of task and activities
1. Required: ex.: human+phys+financial to create your product
2. Distinctive: ex.: the same+TECH to innovate
Resources and competencies
Resources: tangible or intangible
assets
Competencies: bundle of
resources deployed to achieve
different kinds of task and activities
Non required / more specific /
Required / minimum :
distinctive:
to meet the minimum needs of
to build a competitive advantage,
customers
more difficult to develop or imitate
ex.:
Different kinds of physical, financial,
• high qualified human resources
human, technological,
as doctors
organizational and reputational
• Strong international brand
• The same + TECHNOLOGICAL
RESOURCES
to innovate
The sum of Human + Physical +
• Capability to produce a better
Financial resources
offer than competitors and
to create your product realize a more important margin
• …
Resources and competencies

The more firm’s resources are valuable, rare, costly to imitate and
properly exploited (VRIO framework; Barney, 2001, 2007)…

…the more the competitive advantage and the performance will be

important and sustainable (Barney, 1991, 2001; Galbreath, 2005;
Hall, 1992),…

….especially in an international context (Dhanaraj and Beamish,

2003)
https://www.youtube.com/watch?v=ZKPyhoPwuhA
Resources and competencies
In the literature, there are three dimensions of entrepreneurial
characteristics that support firms’ activities and strategy:

(1) human capital, defined as the economic value of the skills and
knowledge possessed by an individual (Becker, 1964);

(2) social capital, defined by the formal and informal relationships

maintained by entrepreneurs to obtain and use resources and
information (Adler and Kwon, 2002);

(3) and entrepreneurial orientation, defined as the decision-making

process of the entrepreneurial organization (Lumpkin and Dess, 1996).
Resources and competencies
Two type of basic resources for an effective international development:

International Knowledge Market Relationship Networks

General Specific Inter-orga Interpersonal

- Accurate information on
specific needs of - Personal relationships,
- Basic information - Good relationships family, former
on markets customers in one market with suppliers and
colleagues, friends…
subcontractors
- International - Specific international
business practices in this - Integration into
business practices - Good relations with
market networks of
complementary and entrepreneurs,
- English! competing firms
- Identification of key associations, pressure or
players reflection groups…
Resources and competencies
Resources and competencies
Export (International) performance indicators

Criteria Analysis Score out to 10

Ability to increase production
Capacity to adapt production to the specific needs of
foreign markets
Financial capacity to finance internationalisation
Mastery of local languages and cultures
Density of the network of relations
Differentiation of the offer from local offers
Knowledge of the sector
Adequacy or ability to achieve standards/certifications
Mastery of international trade techniques

Commercial strength
Average of the criteria /10
The SWOT analysis
The SWOT analysis

SWOT analysis is a technique for understanding a firm’s situation by

considering its strengths and weaknesses, along with the
opportunities and threats that exist in the firm’s environment.

A mix of internal and external analysis :

Resources, competencies, capabilities analysis

+
PESTEL, CAGE, FIVE FORCES
The SWOT analysis
In summary, SWOT analysis helps you identify strategic alternatives
that address the following questions:
Internal analysis

Strengths Weaknessees

How can you use your

How can you use your strengths
opportunities to overcome the
Opportunities to take advantage of the
weaknesses you are
opportunities?
experiencing?
External
analysis
How can you take advantage of
How can you minimise your
Threats your strengths to avoid real and
weaknesses and avoid threats?
potential threats?
The SWOT analysis
Application : SWOT at an international level for McDonalds

STRENGTHS WEAKNESSES
• Very well-known brand • Old brand
• Franchise system • Unhealthy food, linked to
• Financial power obesity
• Local market adjustments • Bad image about employment
• Advertising Partnership • Huge waste
(Disney..)

OPPORTUNITIES THREATS
• Less time to eat, opportunity for • Very competitive market
fast-food industry • Markets saturated in some
• Opening markets, emerging countries
markets • A lot of complaints
(employees, franchised,
ecologists…)
 Strategic choices and
Chapter 3
foreign market entry
modes
• Entry modes
• International strategies
• Other topics…
The entry modes
Entry modes

What is the best way to enter a new market?

Entry modes differ in the degree of resource commitment to a particular market

and the extent to which an organisation is operationally involved in a particular
location.

The key entry mode types are:

• Exporting,
• Contractual arrangement through licensing and franchising,
• Joint ventures and alliances,
• Foreign direct investment, which in turn may involve the acquisition of
established companies or ‘greenfield’ investments, the development of facilities
‘from scratch’
 Entry modes

The Hierarchical Model of Market Entry

Modes, Yigang Pan and David K. Tse,
Entry modes
Entry modes
Different alternatives
within exporting
More knowledge, better management

Indirect exportation Direct exportation

Entry modes
Entry modes
• Joint venture = creation of a new entity between two or several partners
• Strategic alliance = does not involve the creation of a new entity.
Strategic alliance between Merck and PAREXEL
International Corporation = collaboration on biotechnology efforts known as biosimilars.
Entry modes
Entry modes

Type of Entry Advantages Disadvantages

Low control, low local knowledge, potential

Exporting Fast entry, low risk
negative environmental impact of transportation
Less control, licensee may become a competitor,
Licensing (and
Fast entry, low cost, low risk legal and regulatory environment (IP and contract
Franchising)
law) must be sound
Shared costs reduce Higher cost than exporting, licensing, or
Partnering and Strategic
investment needed, reduced franchising; integration problems between two
Alliance
risk, seen as local entity corporate cultures
Fast entry; known, established
Acquisition (FDI) High cost, integration issues with home office
operations
Gain local market knowledge;
Greenfield Venture (FDI)
can be seen as insider who High cost, high risk due to unknowns, slow entry
(Launch of a new, wholly
employs locals; maximum due to setup time
owned subsidiary)
control
 Entry mode choice
Evaluating
market
entry modes

=> Matching
market attributes,
internal attributes
and entry modes

! Moderated by
the industry
and other
characteristics !
 Entry mode choice

Scoring model
for selecting the
market entry
mode
The 4 international
strategies
Type of international strategies

⇒ Mix a Generic Strategies with one of the 4 International

Strategies :

1. (Export) international strategy

2. Multidomestic strategy
3. Global strategy
4. Transnational strategy
Exercise : Explain Generic Strategies
Type of international strategies
(Export) international strategy

• Low local responsiveness

• Easiest international strategy
• Few resources involved

⇒ Same product for each market

⇒ Best entry modes are Export, Licence

Kraft sells the same products in US and Canada.

Harley Davidson sells the same motorcycles in 67 countries, retaining its “Made in America”.
Type of international strategies
Multidomestic strategy

• To sacrifice efficiency in favor of emphasizing responsiveness to local

requirements, by giving decentralising decision-making authority to
local business units in each country so that they can create products
and services optimised to their local markets.

=> Adaptation = product customised for each market

=> Effective when large differences exist between countries
=> Best entry modes are Franchisees, joint-ventures, subsidiaries

Netflix customises the programming to the country woth local production.

Large fast-food chains such as McDonald’s rely on the same brand names and the same core menu items
around the world. But make some concessions to local tastes too. In France, for example, wine can be
purchased at McDonald’s.
Type of international strategies
Global strategy (opposite of a multidom strat)

• A firm using a global strategy sacrifices responsiveness to local

requirements within each of its markets in favor of emphasizing
efficiency (standardisation).

• is controlled by the home office and seeks to maximize global

efficiency (costs advantages, economies of scale).

=> Same product for each market

=> Effective when differences between countries are small
=> Best entry mode is Subsidiaries

Microsoft offers the same software programs around the world with only local languages
adjustments.
Type of international strategies
Transnational strategy (in the middle)

• A firm using a transnational strategy seeks to combine the

best of multidomestic strategy and a global strategy to get
both global efficiency (economies of scale) and local
responsiveness (adaptation).

• Flexibility of local business units and coordination between

them and with the home office.

=> Adaptation = product customise for each market

=> Best entry modes are subsidiaries, joint-ventures

Coca-Cola transforms its products with local water and bottles them in the country or in a close
geographic area where bottles will be sold.
Type of international strategies
Type of international strategies
The classic integration-responsiveness framework
Need for
economies
of scale

Need for
International adaptation
Strategy of local needs
Type of international strategies
Type of international strategies
Other topics…
Timing and processus in internationalisation

Frequently, a sequential process whereby companies gradually increase their

commitment to newly entered markets, accumulating knowledge and increasing
their capabilities along the way.

=> internationalisation by stage (or Uppsala Model)

Timing and processus in internationalisation

Uppsala model (1977) Uppsala model (2009)

Focus “Knowledge” Focus “Networks”

Timing and processus in internationalisation

In contrast to the gradual internationalisation

followed originally by many large and
established firms, some small firms are now
internationalising rapidly at early stages in their
development using multiple modes of entry to
several countries.

=> ‘born global’ firms.

Timing and processus in internationalisation
Timing and processus in internationalisation
Timing and processus in internationalisation
Timing and processus in internationalisation

Timing is also about the first-mover advantage

• A first-mover advantage holds that the first entrant in a new market enjoys a
unique advantage that later competitors cannot overcome (i.e., that the
competitive advantage so obtained is structural and therefore sustainable).

• That is not systematically true (example of first occidentals companies entering in Russia
and China):
• a “fast follower” can benefit from the market development funded by the
pioneer and leapfrog into earlier profitability
Timing and processus in internationalisation

A first-mover advantage could exist if:

• there must be a scarce resource in the market that the first entrant can
acquire.
• and the first mover must be able to lock up that scarce resource in such a
way that it creates a barrier to entry for potential competitors.

A good example is provided by markets in which it is necessary for foreign firms to obtain a
government permit or license to sell their products. In such cases, the license, and perhaps
government approval, more generally, may be a scarce resource that will not be granted to all
comers.
Export Support Programs
Find the right Export Support Programs adapted for the
internationalisation strategy of the company :

http://www.bpifrance.fr/offers/results?o[]=3404&o[]=3405&o[]=3406&o[]=
3407

• Look at the characteristics of the company compared to the

requirements for each service offer by the government (see link above).
• Identify the services adapted to the company situation, objectives and
strategy.
• Find potential additional local specific services (in the city, region...of the
company)
TO CONCLUDE